The book is organized around three main themes, Enterprise systems, E-business and Controls annd how these systems and the controls for these systems related to the study of accounting of information systems. Below are definitions and examples of these three themes:
Enterprise Systems - integrate the business process functionality and information from all of an organization's functional areas, such as marketing and sales, cash receipts, purchasing, cash disbursements, human resources, production and logistics, and business reporting (including financial reporting). As consultants, business process owners, system users, or auditors, we must understand these systems and be able to install, use and audit them.
Enterprise resource Planning (ERP) systems are software packages. To install an enterprise system, the business processes of an organisation must be understood and documented. The ERP system must be configured to suit the needs of various business processes of an organization. Sometimes businesses processes may need to be changed to configure to the enterprise systems.
E-Business - is the application of electronic networks (including the Internet) to undertake business processes between individuals and organizations. It has created new ways of working within and across organizations. It changes how organizations identiry customers and select vendors and should also have an effect on pricing.
Controls - Internal control is a system of integrated elements - people, structure, processes, and procedures to aid an organization in achieving its business process goals. Compliance with laws and regulations includes the SOA that requires that management identify, document and evaluate significant internal controls and that auditors report on managements' assertions about the system of internal control.
The goals to be achieved by an effective internal control systems are:1) Operations are efficient and effective. 2)provide reasonable assurance that financial reporting is reliable. 3) Compliance with applicable laws and regulations. 4) Safeguarding of valuable organizational resources.
Challenges and Opportunities:
Being a CPA is much different today then it was 20 years, 10 years or even 5 years ago. Instead of the green eye-shaded bean counter, accountants today have much more dynamic roles. Not only has the role of the accountant changed but the environment in which accountants work has changed and continues to change rapidly. This rapid change in business enviornonments, driven by Information Technology, does not appear to be slowing down. Thus presenting the CPA of today and tomorrow with new challanges and opportunites. Below these are described:
Opportunities include the addition of new professional activities. The top five activities that will be most valued by employers in a few years, according to a surver sponsored by the Institute of management Accountants, include customer and product profitability, process improvement, performance evaluation, long-term strategic planning and computer systems and operations. The role of the attest fuctions is expanding to include non-financial information, use of information technology to create or wummarize information from databases and an assurance service wherby the accountant will interpret information to determine the quality and relevance of information to be used for decision making. These opportunites can sometimes serve as challenges as well.
Todays CPA can look forward to working above and beyond just tax and auditing. AICPA has identified six assurance services that will be offered by accountants. These services are Risk assessment, business performance measurement, information systems reliability, E-commerce, Health care performance measurement and Eldercare services.
Broad View of AIS:
The AIS wheel consists of 10 elements, these can be defined as:
Technology - Our ability to plan and manage business operations depends partly on our knowledge of the technology available. Because technology provides the foundation on which AIS and business operations rest, the knowledge of technology is important to the understanding of AIS.
Databases - Understanding databses is vital to the accountant. The full accounting cycle includes data collection and storage therefore we must have this knowledge. We must have an understanding of the variety of databases, the quantity and type of data available in the databases and how to retrieve data from them.
Reporting - One of the expanded roles of the attest function includes the ability to use technology to create or summarize information. As accountants we must know what outputs are required and of use.
Control - As accountants we must be able to control business processes. In order to do that we muxt develop an understanding of control that is specific to the situation but also adaptable for the future.
Business Operations - This is one of the three elements of a business process. We must be able to analyze and manage an AIS dependent on the work being performed by the organization. We must be able to advise management and prepare apropriate reports. To perform these tasks we must understand the organization's business and operations.
Events Processing - This is the second of the three elements of a business process. Data about events such as sales and pruchases must be captured and recorded to mirror and monitor the business operations. As accountants we must know what event data are processed and how they are processed.
Managment Decision Making - This is the third elelment of a business process. The information in a database is used to make decisions. That information must be customized to the style and preference of the decision maker.
Systems Development and Operation - The information systems that process business events and provide information for management decision making must be designed, implemented, and effectively operated. Choosing the data for a report and designing that report or configuring an enterprise system are examples of systems development tasks that can be accomplished by accountants.
Communications - Accountants must have strong oran and written communication skills in order to present their results effectively. Because there are few right or wrong answers in the study of AIS we must be able to present our decisions efficiently.
Accounting and Auditing Principles - To design and operate the accounting system, an accountant must know the proper accounting procedures and must understand the audits to which the accounting information will be subjected.
Narrow View of AIS:
Here we focus on the accounting information system itself (the database, the ERP system, the information system)
Systems and Subsystems
A System is set of interdependent elements that together accomplish specific objectives. A system must have organization, interrelationships, integration and central objectives. Each part of a sytem is called a subsystem. Within limits, a subsystem can be further divided into its own parts or subsystems. e.g UCF is a system. The college of engineering, college of business etc are some of its subsystems. College of business can be further divided into into school of accounting, department of marketing, finance etc.
A system's basic objectives depend on its type- natural, biological, or man-made- and on the particular system.
Information Systems Model
Managment Information System (MIS) also known as information system (IS):
A manmade system that generally consists of an intergrated set of computer-based and manual components established to collect, store, and manage data and to provide output information to users.
Accounting Information System
Logical Model of a Business Process:
3 logical components in a business process
Information Process - the parts of the overall Information System that are involved with a specific business process
Operations Process - the man made system that performs the core work of the organization; includes production, personnel, marketing, sales, accounting, warehousing and distribution
Management Process - the man made system that plans and controls the operations in the organization; includes planning, controlling and decision making.
10 flows that connect the 3 components in a Customer Order/ Sales event
Management sets policies and procedures for operations and hires personnel
Management sets sales objectives and quotas and specifies IS procedures
IS receives a customer order
IS acknowledges customer's purchase order
IS instructs operations to ship goods
IS creates packing slip and it is attached to shipment
Operations ships goods to customer
Operations shipping department reports to IS that goods were shipped
IS prepares invoice and sends to customer
IS prepares sales reports for management
Management Uses of Information:
Data vs Information:
Mirrors and montiors
Support managment activities
Recognize and Adapt
The above mentioned three points are the three main functions or uses of an Information system(IS).
The IS mirrors and monitors actions in the operations systems by processing, recording and reporting business events.
The second main function of IS is to support managerial activities, including management decision making. Managers use this information to evaluate, plan and control the activities of the firm.
Finally, managers must use the IS to recognize and adapt in a timely manner to trends in the organization's environment.
What is the difference between data and information? Data are facts or figures in raw form. Information is data presented in a form that is useful to decision-making activity. To become useful to a decision maker, data must be converted into information.
Qualities of Information:
Statement of Financial Accounting Concepts No 2: Qualtitative Characteristics of Accounting Information
Understandability - Information is presented in a manner that permits the user to apply the information in a decision making process.
Timeliness - Information must be available to a decision maker before it loses its ability to impact a decision. Example: Story about "I love you" in many languages as told in class. In this case the information was not usable because it was not received and processed in a timely manner.
Predictive Value-the information provided can be used to help predict the future value or "estimates"
Feedback Value-confirms or corrections prior expectations made by use of the predictive value
Verifiability-the ability through consensus among measurers to ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias
Neutrality (freedom from Bias) - Information is not biased. Bias is the tendency of information to fall more often to one side than the other.
Comparability - Enables users to identify similarities and differences in two pieces of information.
Consistency - The ability to compare information about the same object or event collected at two points in time.
Accuracy - The information provided is in agreement with the actual events or objects it represents.
Completeness - The degree to which information includes data about every relevant object or event necessary to make a decision. ----
Management Decision Making:
Herbert Simon - 3 step Process
Intelligence - Searching the environment for conditions calling for a decision.
Design - Invententing, developing, and analyzing possible courses of actions.
Choice - Selecting a course or action.
Operational Management Requirements - Information used is often an aggregate of data related to several business events.
Tactical Management Requirements - Information that focuses on relevant operational units and is more summarized, broader in scope, and need not be as accurate as the information used by operation management. Some external information may be required.
Strategic Management Requirements - Information to assess the environment and to project future events and conditions. Information is even more summarized, broader in scope, and comes from outside the organization more than does the information used by tactical management.
Vertical information flows - broad data that travels between the rungs of the ladder (between operational, tactical, and strategic levels); serves as a multifunctional management function; information such as single business events would flow upward, while information such as budgets would flow downward.
Horizontal information flows - specific data that travels inside each level of management; narrow in scope, detailed, mostly comes from within the organization; ex. one single sale.
Structured vs Unstructured - Structured decisions are made with three decision phases in mind: intelligence, design, and choice. These are repetitive and routine decisions and are sometimes automatically done by a computer. For example: to issue credit to a customer they might have to have a certain limit placed on them and the computer will be able to limit the amount of credit issued based on that information. Unstructured decisions are, naturally, not an automatic process. For example a manager might decide whether to proceed with an R&D project or not, which has no routine or repetivie decision-making already in place to help the manager decide.
Here's an interesting article on the subject titled, hoping to help ease manager's decisions: Structured versus Unstructured: Choices for Information Management
Main Themes:
The book is organized around three main themes, Enterprise systems, E-business and Controls annd how these systems and the controls for these systems related to the study of accounting of information systems. Below are definitions and examples of these three themes:Enterprise Systems - integrate the business process functionality and information from all of an organization's functional areas, such as marketing and sales, cash receipts, purchasing, cash disbursements, human resources, production and logistics, and business reporting (including financial reporting). As consultants, business process owners, system users, or auditors, we must understand these systems and be able to install, use and audit them.
Enterprise resource Planning (ERP) systems are software packages. To install an enterprise system, the business processes of an organisation must be understood and documented. The ERP system must be configured to suit the needs of various business processes of an organization. Sometimes businesses processes may need to be changed to configure to the enterprise systems.
E-Business - is the application of electronic networks (including the Internet) to undertake business processes between individuals and organizations. It has created new ways of working within and across organizations. It changes how organizations identiry customers and select vendors and should also have an effect on pricing.
Controls - Internal control is a system of integrated elements - people, structure, processes, and procedures to aid an organization in achieving its business process goals. Compliance with laws and regulations includes the SOA that requires that management identify, document and evaluate significant internal controls and that auditors report on managements' assertions about the system of internal control.
The goals to be achieved by an effective internal control systems are:1) Operations are efficient and effective. 2)provide reasonable assurance that financial reporting is reliable. 3) Compliance with applicable laws and regulations. 4) Safeguarding of valuable organizational resources.
Challenges and Opportunities:
Being a CPA is much different today then it was 20 years, 10 years or even 5 years ago. Instead of the green eye-shaded bean counter, accountants today have much more dynamic roles. Not only has the role of the accountant changed but the environment in which accountants work has changed and continues to change rapidly. This rapid change in business enviornonments, driven by Information Technology, does not appear to be slowing down. Thus presenting the CPA of today and tomorrow with new challanges and opportunites. Below these are described:Opportunities include the addition of new professional activities. The top five activities that will be most valued by employers in a few years, according to a surver sponsored by the Institute of management Accountants, include customer and product profitability, process improvement, performance evaluation, long-term strategic planning and computer systems and operations. The role of the attest fuctions is expanding to include non-financial information, use of information technology to create or wummarize information from databases and an assurance service wherby the accountant will interpret information to determine the quality and relevance of information to be used for decision making. These opportunites can sometimes serve as challenges as well.
Todays CPA can look forward to working above and beyond just tax and auditing. AICPA has identified six assurance services that will be offered by accountants. These services are Risk assessment, business performance measurement, information systems reliability, E-commerce, Health care performance measurement and Eldercare services.
Broad View of AIS:
The AIS wheel consists of 10 elements, these can be defined as:Narrow View of AIS:
Here we focus on the accounting information system itself (the database, the ERP system, the information system)Systems and Subsystems
A System is set of interdependent elements that together accomplish specific objectives. A system must have organization, interrelationships, integration and central objectives. Each part of a sytem is called a subsystem. Within limits, a subsystem can be further divided into its own parts or subsystems. e.g UCF is a system. The college of engineering, college of business etc are some of its subsystems. College of business can be further divided into into school of accounting, department of marketing, finance etc.
A system's basic objectives depend on its type- natural, biological, or man-made- and on the particular system.
Information Systems Model
Managment Information System (MIS) also known as information system (IS):
A manmade system that generally consists of an intergrated set of computer-based and manual components established to collect, store, and manage data and to provide output information to users.
Accounting Information System
Logical Model of a Business Process:
3 logical components in a business process- Information Process - the parts of the overall Information System that are involved with a specific business process
- Operations Process - the man made system that performs the core work of the organization; includes production, personnel, marketing, sales, accounting, warehousing and distribution
- Management Process - the man made system that plans and controls the operations in the organization; includes planning, controlling and decision making.
10 flows that connect the 3 components in a Customer Order/ Sales eventManagement Uses of Information:
Data vs Information:
Mirrors and montiors
Support managment activities
Recognize and Adapt
The above mentioned three points are the three main functions or uses of an Information system(IS).
The IS mirrors and monitors actions in the operations systems by processing, recording and reporting business events.
The second main function of IS is to support managerial activities, including management decision making. Managers use this information to evaluate, plan and control the activities of the firm.
Finally, managers must use the IS to recognize and adapt in a timely manner to trends in the organization's environment.
What is the difference between data and information? Data are facts or figures in raw form. Information is data presented in a form that is useful to decision-making activity. To become useful to a decision maker, data must be converted into information.
Qualities of Information:
Statement of Financial Accounting Concepts No 2: Qualtitative Characteristics of Accounting Information
Management Decision Making:
- Herbert Simon - 3 step Process
- Intelligence - Searching the environment for conditions calling for a decision.
- Design - Invententing, developing, and analyzing possible courses of actions.
- Choice - Selecting a course or action.
- Operational Management Requirements - Information used is often an aggregate of data related to several business events.
- Tactical Management Requirements - Information that focuses on relevant operational units and is more summarized, broader in scope, and need not be as accurate as the information used by operation management. Some external information may be required.
- Strategic Management Requirements - Information to assess the environment and to project future events and conditions. Information is even more summarized, broader in scope, and comes from outside the organization more than does the information used by tactical management.
Vertical information flows - broad data that travels between the rungs of the ladder (between operational, tactical, and strategic levels); serves as a multifunctional management function; information such as single business events would flow upward, while information such as budgets would flow downward.Horizontal information flows - specific data that travels inside each level of management; narrow in scope, detailed, mostly comes from within the organization; ex. one single sale.
Structured vs Unstructured - Structured decisions are made with three decision phases in mind: intelligence, design, and choice. These are repetitive and routine decisions and are sometimes automatically done by a computer. For example: to issue credit to a customer they might have to have a certain limit placed on them and the computer will be able to limit the amount of credit issued based on that information. Unstructured decisions are, naturally, not an automatic process. For example a manager might decide whether to proceed with an R&D project or not, which has no routine or repetivie decision-making already in place to help the manager decide.
Here's an interesting article on the subject titled, hoping to help ease manager's decisions: Structured versus Unstructured: Choices for Information Management